Premium pricing draws Aurora to B.C. producer
Aurora Cannabis Inc. — the third largest Canadian cannabis company by market value — has signed a $175-million all-stock deal to buy up mid-sized licensed producer Whistler Medical Marijuana Corp., a privately held cannabis grower in British Columbia.
Aurora is pegging the purchase as a product and brand play — the company is particularly interested in the full suite of Whistler’s organic cannabis products and the brand recognition it has built up as one of the country’s first licensed producers to sell to the medical market.
“Their organic brand generates a lot of respect in the community,” said Cam Battley, chief corporate officer of Edmonton-based Aurora. “Most of their organic products are already commanding premium price in the medical and adult-use markets, so we also see this as an opportunity to be the first company to bring organic cannabis to the international market.”
Both companies had been in conversation for “weeks” according to Battley, before coming to the decision to go ahead with the transaction.
“We feel there is a strong cultural fit and believe that Aurora is the right home for us to maintain our organic craft cultivation identity, while being able to leverage the resources of a large global company,” Christopher Pelz, CEO and founder of Whistler, said in a statement.
Whistler has 13 products, from oils to pre-rolled flower and dried bud, listed on B.C.’s online store. One gram of their dried organic flower is priced at $17.99, more than double the average price of a gram of cannabis, which hovers around the $8 mark, according to the latest data from Statistics Canada.
“Certified organic products are produced in a particular way. It goes beyond the non-use of pesticides and there are very few producers in Canada that grow organic cannabis,” Battley said.
Whistler has two indoor licensed production facilities, the second of which is EU GMP-certified and is anticipated to reach full capacity this summer. That will bring the company’s total production capacity to over 5,000 kg per year.
By contrast, Aurora’s production capacity is about 100,000 kg per year — it’s fully funded capacity however, is five times that amount, suggesting that the purchase of Whistler was more a strategic investment, rather than an attempt to boost supply.
“Given where they are in their funded build-outs, 5,000 kilograms is not going to make or break their ability to supply,” said Matt Bottomley, an analyst at Canaccord Genuity Corp. “I don’t think every single medium-sized player is going to be able to find a buyer, because if you’re a licensed producer like Canopy or Aurora or Tilray, at this point you don’t need to buy anyone for their capacity, so there has to be a differentiation or a strategic rationale.”
He believes that apart from Whistler and Broken Coast Cannabis, another licensed producer from B.C. supplying the recreational and medical markets that was purchased by Aphria last year, there are no known brands that have been thriving in the medical market. On that basis, Bottomley characterizes the deal as “not material” but a “tack-on acquisition for Aurora that could not hurt.”
Licensed producer Cronos Group owns a 21.5-per-cent equity stake in Whistler, after helping finance the expansion of its second facility in mid-2017.
The deal is subject to certain milestone payments, which essentially means that Whistler will have to achieve certain financial goals or targets by a specific point in time in order for Aurora to complete the purchase.